Debt Ratios for Home Financing
The ratio of debt to income is a tool lenders use to determine how much money is available for your monthly home loan payment after all your other recurring debt obligations have been fulfilled.
How to figure your qualifying ratio
Typically, conventional mortgages require a qualifying ratio of 28/36. FHA loans are less strict, requiring a 29/41 ratio.
For these ratios, the first number is how much (by percent) of your gross monthly income that can be spent on housing. This ratio is figured on your total payment, including homeowners' insurance, homeowners' dues, Private Mortgage Insurance - everything.
The second number is the maximum percentage of your gross monthly income which can be applied to housing expenses and recurring debt together. Recurring debt includes things like auto loans, child support and credit card payments.
Examples:
With a 28/36 qualifying ratio
- Gross monthly income of $3,500 x .28 = $980 can be applied to housing
- Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses
With a 29/41 (FHA) qualifying ratio
- Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
- Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
If you want to calculate pre-qualification numbers on your own income and expenses, feel free to use our Mortgage Qualifying Calculator.
Just Guidelines
Remember these are just guidelines. We'd be thrilled to help you pre-qualify to help you determine how large a mortgage you can afford.
BeneGroup, Inc. can walk you through the pitfalls of getting a mortgage. Call us at 4083956018.